Indian Dyestuff Industries Ltd. ... vs The Union Of India (Uoi) And Ors.
2002 Latest Caselaw 2080 Del

JUDGMENT

D.K. Jain, J.

1. The petitioner carries on the business of manufacture of synthetic organic dyestuff and in the manufacturing process uses about two dozen intermediates as raw materials, classifiable under Tariff Item No. 68 in the First Schedule to the Central Excise and Salt Act, 1944 (for short the Act). On the manufacture of synthetic organic dyestuff the petitioner is liable to pay excise duty under Tariff Item No. 14-D of the First Schedule.

2. In exercise of powers conferred under Rule 8 of the Central Excise Rules, 1944 (for short the Rules), the Central Government, by Notification No. 103/61, exempted synthetic organic dyestuff falling under Tariff Item No. 14-D, manufactured wholly or partly out of the intermediates from the payment of so much duty of excise thereon as was equivalent to the amount of countervailing duty paid on imported intermediates. As a result of the Notification, the manufacturer of synthetic organic dyestuff became entitled to get credit for countervailing duty paid on raw materials utilised in the manufacture of said synthetic utilised in the manufacture of said synthetic organic dyestuff at the time of payment of excise duty thereon.

3. By amending Notification No. 109/80, dated 19 June, 1980, the Central Government directed that Notification No. 106/61 shall stand amended in the manner specified in Col. 3 of the table annexed to the Notification. Thus, Notification No. 103/61 stood amended by insertion of the following proviso:

"Provided that in relation to the exemption under this Notification, the procedure set out in Rule 56A of the aforesaid Rules is followed."

The result of said Notification was that in order to avail of exemption under Notification No. 103/61, the manufacturer had to follow the procedure set out in Rule 56A of the Rules.

4. According to the petitioner, by means of various applications it applied for the benefit of the said Notification, stating that various raw materials imported by them, which, if manufactured in India, would fall under Tariff Item No. 68, were used by them in the manufacture of synthetic organic dyestuff falling under Tariff Item No. 14-D. It is claimed that vide letter dated 5 September 1981, the petitioner was informed that its applications were granted provisionally and that the credits taken by them would be subject to the final decision on the said applications. The petitioner continued to avail of the benefit of the said Notification, which aggregated to over Rs. 10 lacs.

5. In the second week of December 1981, the petitioner was informed that the facility of the credit under Notification No. 103/61 was not admissible to it in respect of imported intermediates falling in Tariff Item No. 68. The petitioner was accordingly required to pay back the amount which it had utilised for clearance of the said finished products. It was further directed not to utilise the credit lying in balance in petitioner's RG-23 account and pay the duty within ten days of the receipt of the said letter. Later on the petitioner was again informed the permission to avail of the proforma credit under Rule 56A in respect of countervailing duty paid on imported raw material, falling under Tariff Item No. 68, could not be granted and that he was required to pay the duty due on the goods cleared on the strength of the provisional permission either by adjustment in the account maintained in terms of Rule 171-G or in cash. They were directed not to utilise the amount of credit earned and lying in balance in RG-23 register. These communications are under challenge in this writ petition.

6. When the matter came up for motion hearing, on the first date itself "Rule DB" was issued and by an ex parte and interim order, the respondents were restrained from levying excise duty without giving credit for countervailing duty paid on imported raw materials, subject to the petitioner executing a bond for 100% of the disputed duty and giving bank guarantee for 50% of the disputed duty. The said order still continues to be in force.

7. The petition is resisted by the respondents. In reply to the application seeking interim relief, it is stated that prior to the amending Notification No. 109/80, dated 19 June 1980, whereby the set off procedure was replaced and the procedure as laid down in Rule 56A was made compulsory for availing of the benefit under Notification No. 103/61, another Notification No. 104/79, dated 3 March 1979, was issued whereby a second proviso was inserted to Sub-rule 2 of Rule 56A, according to which no credit of countervailing duty in respect of any material or component parts used in the manufacture of finished excisable goods was permissible, if countervailing duty had been paid in respect of such material or component parts, falling under Tariff Item No. 68 of the First Schedule to the Act. The cumulative effect of the two Notifications was that under Notification No. 104/79, no proforma credit was permissible in respect of countervailing duty paid on imported intermediates as would fall under Tariff Item No. 68 whereas under Notification No. 109/80 procedure under Rule 56A was made mandatory for the purposes of availing of benefits of duty paid on the imported intermediates, as envisaged in Notification No. 103/61. It is also pointed out that though the amending Notification No. 109/80 was issued on 19 June 1980, the petitioner company, for reasons best known to them, did not apply for the permission for availing the said exemption, nor did they follow the procedure laid down in Rule 56A.

8. We have heard learned counsel for the parties.

9. To appreciate the controversy, it would be necessary to notice Rule 56A, which reads as follows:

"56A. Special procedure for movement of duty paid materials or component parts for use in the manufacture of finished excisable goods: (1) Notwithstanding anything contained in these rules, the Central Government may, by notification in the official gazette, specify the excisable goods in respect of which the procedure laid down in Sub-rule (2) shall apply.

(2) The Collector may, on application made in this behalf and subject to the conditions mentioned in Sub-rule (3) and such other conditions as may from time to time be prescribed by the Central Government, permit a manufacturer of any excisable goods specified under Sub-rule (1) to receive - material or component parts of finished products (like asbestos cement), on which the duty of excise or the additional duty under 32 (Section 3 of the Customs Tariff Act, 1975 (51 of 1975) (hereinafter referred to as the countervailing duty), has been paid in his factory for the manufacture of these goods or for the more convenient distribution of finished products and allow a credit of the duty already paid on such material or component parts or finished product, as the case may be:

Provided that no credit of duty shall be allowed in respect of any material or component parts used in the manufacture of finished excisable goods -

(i) if such finished excisable goods produced by the manufacture are exempt from the whole of the duty of excise leviable thereon or are chargeable to 'nil' rate of duty, and

(ii) unless -

(a) duty has been paid for such material or component parts under the same item 33 (***) as the finished excisable goods, or

(b) remission or adjustment of duty paid for such material or component parts has been specifically sanctioned by the Central Government.

Provided further that no credit of countervailing duty shall be allowed in respect of any material or component parts used in the manufacturer of finished excisable goods, if countervailing duty has been paid in respect of such material, or component parts, as fall under Item No. 68 of the First Schedule to the Central Excise & Salt Act, 1944 (1 of 1944)."

10. As the marginal note indicates, the Rule lays down a special procedure for movement of duty paid materials or component parts for use in the manufacture of finished excisable products. Under the Rule, a manufacturer is entitled to claim credit of duty already paid on raw materials or component parts of finished goods, as the case may be, on such goods received by him for the purpose of manufacturer of finished products, on the terms and conditions as laid down therein. Rule 56A is designed to provide relief against double incidence of duty in certain specified situations.

11. As noted above, the entire controversy revolves around the second proviso to Sub-rule (2) of Rule 56A. The stand of the petitioner is that Notification No. 103/61 is totally independent of substantive part of Rule 56A and what is sought to be incorporated by means of Notification No. 109/80 in the said Notification is the adherence to procedural portions of Rule 56A. The submission is that procedural portion of Rule 56A are severable from the substantive portion contained therein. It is pleaded that the amendment of Rule 56A by Notification No. 104/79 is a substantive amendment and, therefore, does not affect Notification No. 103/61. It is also urged that if the construction sought to be put by the respondents is accepted, Notification No. 103/61 would be rendered totally redundant and otiose as all the intermediates utilised in the manufacture of synthetic organic dyestuff fall under Tariff Item No. 68 and if the credit for countervailing duty on the said imported raw material is denied, the notification will have no application whatsoever.

12. We are unable to agree with the stand of the petitioner. As noticed above, Rule 56A is designed to provide relief against the double incidence of duty under certain specified situations. Whether the relief is to be circumscribed by putting some special conditions is a matter beyond the pale of Court's jurisdiction. It is essentially a policy matter. The effect of the insertion of second proviso to Sub-rule (2) of Rule 56A by Notification No. 104/979 is that no credit of countervailing duty is to be allowed in respect of any material or component parts used in the manufacture of finished excisable goods, if countervailing duty has been paid in respect of such material or component parts which fall under Tariff Item No. 68 of Central Excise Tariff. The language employed in the second proviso is categorical and its effect cannot be ignored. If both the provisos to Sub-rule (2) of Rule 56A are read conjointly, the intention of the rule making authority becomes clear that unless the conditions stipulated therein are complied with, the manufacturer cannot take credit of countervailing duty in terms of Notification No. 103/61. We are of the view that the main provisions contained in Rule 56A (1) and (2) have to be applied without any limitations. Learned counsel for the petitioner was unable to show as to how Notification No. 104/79 was otherwise illegal. We are, therefore, unable to hold that the second proviso, inserted by Notification No. 104/79, is of no consequence insofar as the relief under the main Rule 56A is concerned, as is sought to be pleaded on behalf of the petitioner.

13. For the foregoing reasons, we do not find any merit in this petition. The same is accordingly dismissed and the Rule is discharged. Interim order dated 2 February 1982 stands vacated. It will be open to the respondents to invoke the bank guarantees furnished in terms of the said order. There will, however, be no order as to costs.